Belletti Giovanni, Brazzini Alessandro and Marescotti Andrea
Università di Firenze – Dipartimento di Scienze per l’economia e l’impresa
Abstract: Geographical Indications (GIs) are important tools adopted to underline that reputa-tion, qualities and characteristics of a product are strictly linked to its geographical origin. The protection granted to GIs by the law may exert strong effects both on the firms and other stake-holders in the local production system, and also affects the environmental and social sphere of the specific geographic location. Moreover, the use made by firms of the protected GI is in some cas-es far away from its potentiality, and this clearly affects the effects GI protection can have on different dimensions. The GI level of use by firms depends on different factors, including the cost-benefit analysis, the general strategy pursued by firms, and the characteristics of the Product specifications.
So far, academic literature has not handled this topic in a systematic perspective. The aim of our work is to show the effects of the GI protection through the analysis of two case-studies related to PDO and PGI products in Tuscany, “Fagiolo di Sorana IGP” (Sorana Bean PGI) and “Pecorino Toscano DOP” (Tuscan Sheep-milk cheese PDO). In particular, the attention has been focused on the strategic decisions that lead farmers and processing firms to decide whether and how to use the protected GI for the production and marketing of their products, and on the effects of the GI protection on firms and local agri-food production systems.
The research methodology consisted in some semi-structured interviews to a number of Sorana Bean PGI producers and Tuscan Pecorino-cheese PDO dairies, representative of different firms’
typologies. In addition, the representatives of both Consortia were interviewed.
First results show that firms, although not well documented and conscious about real costs and economic benefits, use of PDO-PGI to attain a wide spectrum of results that are often far away from the expected ones. Besides, the way Product Specifications (PSs) have been drawn greatly affects the effects generated by the protection. Much of the real use of PDO/PGI by firms relies on the coherence between firms’ characteristics and strategies, and Product Specifications, while the different level of use of PDO/PGI by firms do not depend in the two cases by entry-barriers linked to costs needed to implement the Product Specifications.
Keywords: firms’ strategy, Local production systems, Evaluation methods, PDO and PGI
Introduction
The protection of GIs is a tool of growing importance all over the world. Following the TRIPS agreement (1994), all WTO member States are obliged to provide for some regulatory scheme to allow interested parties to apply for a protection of Geographical Indications.
From an economic and social standpoint, interest is growing because of increasing international competition on the level of product quality differentiation, where quality means all attributes, including emotional ones, which help products to stand out and avoid competing purely on price.
As a consequence, many public and private stakeholders at both local and global levels have fos-tered this new turn to quality. GIs appear to be one of the more interesting and “locally managea-ble” tools for attaining this aim.
The protection of GIs is advocated to offer opportunities to support to local agrifood systems and to sustainable rural development (Belletti and Marescotti, 2011b; Frayssignes, 2005). Firms using protected GI are expected to observe a reduction of unfair competition due to abuses or misuses of the GI, and have the opportunity to differentiate their production on the market, thus gaining higher prices, higher sales volumes, and/or access to some marketing channels. Moreover, the protection of GIs is often linked to the production of public goods, such as biodiversity preserva-tion, cultural heritage protecpreserva-tion, sociocultural development and rural poverty reduction (Vandecandealere et al., 2010).
Notwithstanding this growing “enthusiasm” about GIs, to date there is still a lack of systematic research on the effects of GI protection on firms profitability, on local agri-food systems, and on environmental and social aspects. Although there is some academic research that has recently revised potential methods to evaluate GI protection effects (Réviron and Paus, 2006; Barjolle, Paus, and Perret, 2009) and proposed methodological tools to capture all the possible effects of the protection of a GI (Belletti and Marescotti, 2011.a), so far evidence on GI protection effects are mostly related to single aspects and/or single case-studies. Most important, the outcomes of this line of research often point out problems more than opportunities that GI protection seems to have brought (Mancini, 2013). For example, the most comprehensive study on the implementa-tion of GI protecimplementa-tion in EU (London Economics, 2008) showed how firms along the supply-chains of the products observed only an increase of firm’s reputation rather than value added or prices, this also due to poor knowledge and understanding by consumers). Generally speaking, there is no direct evidence that the use of PDO/PGI can lead to higher added value to firms, as a recent study underlines (Areté, 2013), rather showing the presence of uneven and contradictory patterns.
Moreover, the use firms make of the protected GI is in some cases far away from its potentiality, and this clearly affects the effects GI protection can exert. The protected GI level of use by firms depends on different factors, including the cost-benefit analysis, the general strategy pursued by firms, and the characteristics of the Product Specifications, with particular reference to con-straints established in the Product Specification, and degree of internal quality standardization achieved (Barjolle and Sylvander, 2002).
The aim of our work is to show the effects of the GI protection through the analysis of two case-studies related to PDO and PGI products in Tuscany. In particular, the attention has been focused on the strategic decisions that lead farmers and processing firms to decide whether and how to use the protected GI for producing and marketing their products.
The paper proceeds as follows. First, we provide a brief analysis of the main issues of Origin Products (OPs) and Geographical Indications products (GIs) with regards to the analysis of the GI protection. Second, we detail the objectives of the study and the methodological framework.
Third, we put in evidence the most significant results for the two case-studies. The paper ends with some concluding remarks.
Origin Products and GI protection
OP production systems and GIs have many specific relevant features that should be carefully considered when the effects of the registration and use of a legally recognized GI by firms are analyzed.
First of all, OPs production systems are complex systems that are strictly interrelated to many typologies of local resources; therefore, they have a multidimensional and very strict link (ceteris
paribus, stricter than other kind of products) with the territory they come from. Not all the actors belonging to the OP system take part to the GI system, and an improvement in the GI part of the GI system could affect (positively or negatively) the non-GI side of the OP system.
GI protection can affect many aspects of both the OP system and the single firms belonging to it, both in a marketing perspective (quantities sold, prices, added value, …) and in an “intra-system”
perspective (modification of the production methods; coordination and governance mechanisms inside the local production system and the supply chain …) (Barjolle et al, 1998; Réviron and Chappuis, 2011; Arfini et al., 2011).
GI protection, by modifying the local production system and the behavior of involved firms, can exert many effects on other economic activities outside the local production system, and on local territorial capitals (social, economic, cultural, environmental …). Provided that GI protection schemes are but one of the many tools in the OP valorization processes, firms which are able to comply with the Product Specification (PS) choose whether to or not to use the protected GI when they find it profitable according to their global strategy, depending on the marketing chan-nels and customers preferences and knowledge. Therefore, much of the “success”, or put in other terms, much of the extent to which firms will use the protected GI to market their produce de-pends on the relationship between the contents of PS and firms’ characteristics (economic dimen-sion, market positioning, assortment, internal resources availability, etc.).
The PS is a set of requirements, which defines the characteristics of the protected GI product and its production process. Due to its structure, this document is a fully-fledged standard. Indeed, firms which want to use the protected GI have to comply with every norm established in the PS.
The PS is the result of a complex process of negotiation, which involves a great number of stake-holders, from the firms of the different stages of the supply chain to public authorities; therefore, it reflects different point of views and heterogeneous interests (Dentoni et al., 2013). Usually, the debate is based on the definition of the characteristics of three main elements: product, produc-tion process, and producproduc-tion area. This decision-making process influences the PS structure and its rules, as the effects on rural development trajectories (Tregear et al, 2007).
Stricter requirements guarantee high level of product reputation and recognizability among con-sumers, but small or poorly-equipped producers may be excluded, because unable to bear the implementation costs and comply with these rules (Galtier et al, 2013). Moreover, even big firms oriented to mass markets may find not interesting, or too much costly, to insert a so-specialized and different production line. Consequently, the total amount of production may not reach signif-icant levels, relegating the protected GI product to niche markets and/or impeding appropriate collective action, which is identified by some studies as one of the key success factors of PDO/PGIs (Barjolle and Sylvander, 2002).
On the contrary, looser rules simplify the implementation process and increase firms’ possibility to use the protected GI. This situation strengthens both the number of firms using the protected GI and total amount of certified product quantity, increasing the opportunity of reaching super-market and international channels. At the same time, looser PS reduces product standardization and preserves variations of the OP (under the same protected GI many different kinds of product may co-exist), but menacing product identity and reputation and the confidence among buyers and final consumers.
Objectives and methodology
The main purpose of the study is to understand the effects generated by the legal protection by PDOs and PGIs in Tuscany on firms and local agro-food production systems, and to capture the strategic decision by firms on whether and how to use the protected GI according to their charac-teristics.
In order to accomplish the research objectives, we in-depth analyzed two specific PDO/PGI in Tuscany: “Fagiolo di Sorana IGP” (Sorana Bean PGI) and “Pecorino Toscano DOP” (Tuscan Pecorino-cheese PDO). In particular, we decided to select these two products because of their opposite characteristics. Sorana Bean PGI is produced in very small quantities by a few firms localized in a small area of Tuscany, even by non-professional farms. It benefits from a high rep-utation on the market and obtains high prices as compared to conventional beans, mostly using direct sales and traditional distribution channels. Tuscan Pecorino-cheese PDO is one of the most important GIs products in Tuscany. Production is spread all over Tuscany, and most of its pro-duction is marketed through mass distribution, and partly exported.
The research methodology consisted in a first step in an analysis of the “logic” followed during the GI recognition, by an exam of the contents of the PS (also compared to “conventional practic-es”) and other documents; in a second step some semi-structured interviews were conducted with a representative group of Sorana Bean PGI producers (8 out of the 23 registered farmers) and Tuscan Pecorino-cheese PDO dairies (12 out of the 22 registered cheesemakers), in addition to the directors of both Consortia. The aim of these interviews was to understand the motivations underpinning the choice of firms of using the PDO/PGI in marketing their products. The topics investigated during the interviews are the following:
1. Firm's characteristics (history, number and type of products, turnover, certification schemes, etc.);
2. Implementation of PDO/PGI standard (production level, distribution channels, geographical markets);
3. Identification of the main relevant differences between PDO/PGI product and a close substi-tute product;
4. Costs (implementation costs, raw material costs, production costs, certification costs, consor-tium costs, etc.);
5. Prices and incomes;
6. Other benefits related to PDO use.
Results
Sorana Bean PGI
The product and its production system
Sorana Bean PGI is a niche product cultivated in a small and marginal valley in Tuscany, charac-terized by low level of urbanization, industrialization and infrastructures, and for the presence of very small farmers often non-professional (that is retired, hobby or part-time farmers).The pro-duction is characterized by a very low quantity (less than 80 quintals in 2012) and an high sale price (22,00 euro/kg compared to 3-4 euro/kg for conventional beans). Sorana Bean PGI is sold mainly through direct marketing and Tuscany is the traditional market. To be noted that a small share of product is sold to famous restaurants and agri-food shops in the north of Italy.
Sorana Bean PGI is a particular local product, not comparable to any other bean variety. Through the last two centuries, the pedo-climatic features of this small valley have affected the Sorana
bean quality characteristics, giving its distinctiveness: small, pearly white with pink veins and a very thin skin.
The stakeholders agreed on the request for a Product Specifications – obtained in 2004 -containing a strict definition of the geographical boundaries where the production may take place, the banning of the use of chemical herbicides and a relatively low maximum yield per hectare (20 quintals).
The production area allowed by the production rules is very small, and with paedological charac-teristics that impede the adoption of modern techniques. It covers around 660 hectares in this val-ley, from the banks of the Pescia di Pontito creek, called “Ghiareto”, to the upper lands, called
“Poggio”. Moreover, the production rules describe the exact characteristics of the product and the specific harvesting methods.
These specific elements, guaranteed by the PGI scheme, give a strong identity to the product and, consequently, increase Sorana bean reputation and recognizability among consumers, thus justi-fying the high resale price on the market.
The number of producers has slightly grown over the year, but it still remains very small: from 15 producers of 2004 (first year of implementation), the PGI is used by 22 farmers in 2012 (fig.1).
The production too has grown, from 57 q. of certified beans in 2004 up to 76 q. in 2012, follow-ing the growth of surfaces (4,78 ha in 2004, to 5,22 ha in 2012).
Farmers produce on average 378 kg of dry bean (that means approximately an average turnover of 8.000 euro, value at final consumption), ranging from a maximum of 2.822 kg to a minimum of 25 kg (2012), signaling a high heterogeneity of producers (fig.2). Indeed, the production sys-tem is composed by a few big (relatively speaking) professional farms, where the production of Sorana Bean PGI accounts for a high percentage of total farmer’s income, flanked by many small farmers, often non professional, who keep on producing the bean for income integration or just for the pleasure to have this special production.
Figure 1: Sorana Bean PGI - evolution of the number of producers and production
Figure 2: Sorana Bean PGI –share of each farmer’s production 2012
Source: Authors’ elaboration on official data by ICEA Source: Authors’ elaboration on official data by ICEA
The production area, although small, is further divided into two sub-areas: the Ghiareto (a small area along the creek down in the valley) and the Poggio area (all the other area). Indeed, the Product Specifications allow farmers located in the Ghiareto area, more reputed on the market due to special paedo-climatic characteristics that seem to give the bean a particular texture and flavor, to add a special mention on the label, and gain a higher price than average. Professional
0 10 20 30
0 2000 4000 6000 8000 10000
2004 2005 2006 2007 2008 2009 2010 2011 2012 Production(kg),leftaxis
No.Producers(rightaxis)
farmers are mostly located in the Poggio area, potentially getting higher yields than the Ghiareto area, even more than the maximum yield as stated in the Product Specifications (20 quintals/ha).
Strategic use of the PGI
First results of the research show a high interest to produce Sorana Bean PGI, essentially due to the fact that market price is really high compared to conventional beans, while additional produc-tion costs (included inspecproduc-tion and certificaproduc-tion costs) are small. It is worth menproduc-tioning that the morphological characteristics of the production area (in particular the cultivation carried out on the torrent banks) and the limited extension of available fields, coupled to the fact that most farmers are pensioners, hobby, or part-time farmers, do not allowed the use of less expensive production methods. Therefore, producing a different bean variety with “free” cultivation practic-es costs as much as producing Sorana Bean PGI, but the sale price is undoubtedly lower.
Producers underline that Sorana Bean PGI plays an important role in the economy of the area.
The protection as PGI succeeds in reducing imitations on the market (very widespread due to the price differential) and supports promotion and marketing activities of the farmers. Indeed, the PGI increased the fame of this particular bean and, consequently, favored the strengthening of direct marketing. Producers assert that, at the beginning, their own firm brand had no importance in direct sales as personal knowledge and reputation was at the basis of market relationships on short supply-chains and direct sales, while PGI mark was crucial to capture new customers, espe-cially on intermediate markets and distant consumers. On the contrary, frequent consumers eval-uate much more the firm brand then the EU logo, because of the organoleptic differences between beans coming from different producers. Moreover, consumers perceive the PGI mark as a sign of high quality and particular characteristics of the bean. It is for that reason that producers normally succeed in selling the whole production of the year in 5 months despite the high price.
Secondly, Sorana Bean PGI is an important retention tool for consumers. After the first consump-tion, most customers keep buying year after year. Furthermore, this bean is the driving force for other farmers’ products. Producers underline that the excellent impact of Sorana Bean PGI on consumers increases their confidence on consumers and, consequently, the chance of selling other products raises.
Thirdly, producers believe that Sorana Bean PGI selling price is sufficiently profitable, in respect of particular production conditions. Moreover, they highlight that PGI certification legitimize the high price to consumers, scarcely valid in a period of recession.
Fourthly, the profitability of PGI bean has allowed the survival of agriculture in this valley, which otherwise would have been abandoned due to difficult growing conditions, thus generating positive effects in terms of environment and landscape.
Product specifications have been built on the basis of traditional modes of production (banning the use of chemical herbicides, setting a maximum yield), typical of non-professional farmers with less productive land, but that has historically given the reputation of the product.
Some conflicts emerge between “Poggio” and “Ghiareto” producers, due to the higher average production per hectare in Poggio and consequently different production costs, allowing producers
Some conflicts emerge between “Poggio” and “Ghiareto” producers, due to the higher average production per hectare in Poggio and consequently different production costs, allowing producers